Gulf Industry magazine helps you catch up with the numbers behind economic and industrial developments in the region.

GCC economic activity drops 30pc

ECONOMIC activity in the GCC fell by just under 30 per cent during the first half of the year, according to three key metrics.

The value of contracts awarded during the first half of the year in the Gulf Cooperation Council (GCC) fell 26 per cent, when compared with the same period last year, according to the latest data from regional projects tracker Meed Projects

The awards during the period were $75 billion, down from $102 billion during the comparable period last year.

Meed reported in May that the projects market was underperforming in 2015 when compared with 2014.

The report also noted that there were two other data points that showed a similar decline in economic activity.

The total mergers and acquisitions (M&A) activity targeting the region dropped 19.4 per cent to $18.9 billion in the first half of the year.

Meanwhile, the value of deals was the lowest since 2009, signalling a lack of confidence in the home markets. The domestic activity also fell 52 per cent to $9.1 billion, said the data from UK-based Mergermarket.

The expectations for earning on the Saudi Stock Exchange (Tadawul) also suggested a near 30 per cent drop in economic activity.

The local Al-Rajhi Capital Research anticipated earnings for the companies it covers to dip 27 per cent year-on-year for the second quarter of the year.

The firm said the market has been weighed down by the petrochemicals sector, which is expected to report near 34 per cent lower earnings on account of weak product prices and shutdowns at various operations.

The three metrics have outperformed oil prices. According to the US’ Energy Information Administration, the average daily spot price for Brent Crude was $57.82 a barrel during H1, down 46.9 per cent on the average daily price of $108.93 during H1 last year.

Saudi Arabia set for tighter budget

PLUNGING oil prices could mean the first budget cuts for major exporter Saudi Arabia since 2002 but they are not expected to be large enough to stop growth in the Arab world’s biggest economy.

The government gets about 90 per cent of its revenue from oil exports and is believed to need an average oil price above $90 to balance its budget this year.

But Brent crude LCOc1 fell to $67 a barrel this week from $115 in June and if current prices are sustained, the budget plan for next year, expected late this month, will produce a deficit for the first time since 2009.

“There is no way for Saudi authorities to announce a bigger budget in 2015 than what they announced for 2014,” said John Sfakianakis, a former adviser to the Saudi finance ministry who is now regional director of asset manager Ashmore in Riyadh.

“Unavoidably they will have to scale down the budget. But I do not expect the budget to be hugely lower.”

As recently as last month, the International Monetary Fund predicted Saudi Arabia would enjoy a fiscal surplus of 1.6 per cent of gross domestic product in 2015; now, private economists are talking of a deficit of over one per cent. But businessmen and economists do not expect big cuts in state spending because the government has built huge fiscal reserves to cover any deficit and its ultra-low debt levels would allow it to borrow easily if needed.

This means the economy, which grew an annual 3.8 per cent in the second quarter, should continue to expand and major infrastructure projects, such as the $22.5 billion plan to build a metro rail system in Riyadh by 2019, should not be at risk. Some analysts believe Saudi Arabia is content to see oil prices fall as a way to squeeze out competing shale oil producers in the United States, confident it has enough reserves to ride out a period of cheap oil.

The current year’s budget plan envisages expenditure of SR855 billion ($227.8 billion), a mere 4.3 per cent rise from the 2013 plan and the slowest increase in a decade.

“We expect to continue to achieve strong growth in 2015,” Sheikh Mohammed, who is also the ruler of Dubai, said as he commented on the state of the UAE economy.

He said the non-oil sector had experienced positive growth in first quarter and highlighted a “continuing rise in government spending and the increase in government and private capital”.

Sheikh Mohammed stressed that the UAE, which is the world’s sixth-largest producer of crude oil, would “adhere to its long-term strategy to diversify its national economy”.

He noted that the non-oil sector grew 8.1 per cent in 2014 and that its contribution to the economy had reached 68.6 per cent.

“We have put in place all the necessary plans to take that contribution to as high as 80 per cent in 2021,” he said.

This would be done “through intensive investment in the industrial and tourism sectors, air and maritime transport, import and re-export, as well as supporting a range of projects and initiatives based on the knowledge economy,” he added.

The financial sector posted a gain of 15 per cent in 2014, while tourism continued to grow with some 20 million tourists visiting the country, he said.

The fourth largest Opec supplier was hit hard by the global financial crisis, strongly dampening economic growth which averaged just 1.5 per cent between 2007 and 2011.

Oman 2015 budget raises state spending

OMAN’S finance ministry has released a state budget for 2015 that raises spending at the cost of a big projected deficit due to the plunge in oil prices.

Government expenditure this year is estimated at RO14.1 billion ($36.6 billion), up 4.5 per cent from last year’s original plan, the ministry said. Revenues are projected at RO11.6 billion, down one per cent, leaving an anticipated deficit of RO2.5 billion, equivalent to about eight per cent of Oman’s annual gross domestic product.

The ministry said it would look at a range of ways to cover the shortfall. Grants from foreign donors could provide RO200 million, international loans OR200 million, borrowing from the local market RO400 million, state reserve funds RO700 million, and previous years’ surpluses RO1 billion.

The state finances of all the Gulf oil exporters have been hit by the halving of crude prices in the past six months, with Brent crude now standing at about $57 a barrel. But Oman’s oil resources are not as ample as those of its bigger neighbours and it has not built up their huge fiscal reserves, so it is more vulnerable than most.

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